How did China come to Dominate the World of Electric Cars?
JEC NYC — China, a former shadow in the EV industry, has far surpassed the U.S. and Europe, two major powerhouses in manufacturing cars, over the course of a few years. Even more surprising, China sold a whopping 8.1 million EVs in 2023, while the U.S. only sold about 1.2 million. Just in 2022, EV sales increased by 82% and jumped even further in the first quarter of 2023 by 28%. And the momentum isn’t slowing down. It is estimated that EV sales will increase annually by a factor of 6% for the upcoming years, resulting in a projected market volume of $398.0 bn by the end of 2028. The industry has seen such unpredictable booms that even close observers seem to always fall short of its success. “The forecasts are always too low,” says Tu Le, the managing director of Sino Auto Insights. However, this extraordinary transformation wasn’t just wit, but rather a massive risk that had turned out extremely profitable for China.
China’s Incentive to Enter the EV Market
In the early 2000s, China was stuck in a sticky position. While it was a powerhouse in manufacturing cars, China seemed unsuccessful in the foreign market. Due to its lack of experience in crafting motor engines, it failed to provide the quality that consumers were looking for, thus being disliked by the public. China “realized … that they would never overtake the US, German, and Japanese legacy automakers on internal-combustion engine innovation,” said Tu Le. This incentivized the Chinese government to break from the norm and explore a new territory: electric cars. China realized that if successful, it would gain the upper edge in the auto industry. This played in the hands of China as the primary car manufacturers had no reason to take such a risk since they had already excelled at producing hybrid cars. In addition to potentially owning a huge slice of the automobile industry, China believed EVs were the solution to its severe air pollution and could also grow less reliant on Russia for imported oil, thus playing a role in the recovery of the damaged economy from the 2008 financial crisis. Moreover, China had cheap access to commodities from its abundant mines and factories constantly producing goods. Taking everything into consideration, China declared, in 2001, that all scientific research would be directed at EV technology. Meanwhile, in 2007, an auto engineer named Wan Gang who had previously worked for Audi became China’s minister of technology and science. Under this position, Wan Gang spurred the Chinese to go all in on EVs and laid the foundation for the project by arousing interest, specifically in Tesla’s first EV model, the Roadster, in 2008.
The Role of The Chinese Government
The Chinese government had a fundamental part in this project. Starting in 2009, the Chinese government started giving financial subsidies to EV companies, despite the mere 500 EVs sold that year. With this additional cash, EV companies could focus more on research and constant improvement all while setting the price for EVs low. And for the next thirteen years, from 2009 to 2022, China poured $29.0 bn into tax breaks and subsidies, helping companies that manufactured EVs stay afloat. Once the government stopped handing out subsidies, which was replaced by the dual credit policy, it distributed procurement contracts, optimizing financial performance. In addition to tax breaks, subsidies, and procurement contracts, the Chinese government encouraged the purchase of EVs by making the process of getting car licenses, which typically costs thousands of dollars and takes up to years with a normal combustion-engined car, a breeze. The Chinese government also toyed with EVs by replacing them with public transportation to measure their capabilities and performance in the busy streets of China.
Tesla vs. Chinese EVs
Nevertheless, how was China able to compete with Tesla who had already made a mark in the world? China surpassed Tesla because of one significant factor: speed. China is very efficient at directing all its resources and focus toward a project, in this particular case, EVs. China simply outpaced Tesla in producing cars as it manufactured parts at a faster rate, due to its high abundance of factories, as well as the electric batteries that fueled the vehicles. In addition, unlike Tesla, China did not have to rely on imported batteries and instead became the first major maker to produce battery cells from nothing. Because Chinese cars could be manufactured at a much lower cost, it started producing more and more to match the demand. In 2020, China accounted for half the EVs sold worldwide.
Conclusion
Unlike in the beginning, the Chinese feel bright in expanding their reach to foreign markets. Some models are already being used in Europe, and others are considering coming to the US, something gas cars could have never dreamed about. With this brilliant move, China has exceedingly reduced the need for car imports from the West and created an empire that will last in the upcoming decades. As Tu Le said, “larger (global) makers are already partnering with Chinese” to make EVs, and there is no doubt the numbers will only grow from here.
Work Cited:
Yang, Zeyi. “How Did China Come to Dominate the World of Electric Cars?” MIT Technology Review, 31 Aug. 2023, www.technologyreview.com/2023/02/21/1068880/how-did-china-dominate-electric-cars-policy.
“China’s Transition to Electric Vehicles.” MIT News | Massachusetts Institute of Technology, 29 Apr. 2021, news.mit.edu/2021/chinas-transition-electric-vehicles-0429.
Bharadwaj, Raghav. “China’s EV Market: Opportunities, Challenges, and Future Scope — Bolt.Earth.” Bolt Earth, bolt.earth/blog/ev-landscape-in-china.
Lin, Chengyi. “3 Drivers of China’s Booming Electric Vehicle Market.” Harvard Business Review, 3 Jan. 2024, hbr.org/2024/01/3-drivers-of-chinas-booming-electric-vehicle-market.
